Financial reporting: before or after the market closes?

IBM's recent declaration to announce company profits after the stock market close has prompted some organizations to question their policies on the release of earnings information.

IBM joins Motorola, Gillette and Intel on a growing list of companies that justify the switch from a.m. announcements this way: to give ordinary shareholders equal access to information. In reality, however, recent reports say the efforts to level the playing field give professional investors even more time to trade ahead of small investors, by simply utilizing the array of after-hours systems that most small investors aren't equipped to use.

"The small investor doesn't have a chance against market fluctuations," agrees Ron Leach, vice president of accounting at the Cleveland-based Eaton Corporation. "By the time they hear or read information on a stock, the price has already reacted.

"At Eaton," he continues, "we announce at the market opening. That's been our policy all along. But I consider our company a little different in that only 100,000 to 200,000 shares are traded in an average day, and 67 percent of our shares are institutional holdings. And, while Eaton stock could be traded internationally, it really isn't - so after-hours trading is not an issue."

Unlike Eaton, Applied Industrial Technologies, Inc., a Cleveland-based industrial distributor, doesn't have a formal profits-reporting policy. Its goal, according to John Whitten, vice president of finance and treasurer, is to get information out to analysts and investors as soon as it's available.

"The standard procedure is to issue a press release by noon and hold a conference call by 4 p.m.," says Whitten. "In today's global trading environment, I guess we can say that the market never closes. So the point of reporting 'after-hours' doesn't mean what it did years ago."

According to Louis Thompson, president of the National Investor Relations Institute, the companies that give investors and analysts the best shot at simultaneously digesting and acting on earnings announcements are those that announce results just before the market opens and hold a "scripted" conference call during the trading day that follows the official release.

"Still, some analysts argue that they don't want to take the time during the trading day to staff a conference call," comments Thompson. "But the market isn't just for them. The market is driven by institutional investors. However, if we're going to provide that level playing...